Long-awaited detail on the government’s planned changes to inheritance tax for farms have been unveiled as part of a new consultation.
There were many unknowns back in September, when the Labour government announced in the Budget its plans to slash agricultural property relief (APR) and business property relief (BPR), which reduce the amount of inheritance tax (IHT) paid on the transfer of farmland, with more details set to follow in the new year.
Under the changes, from April 2026, only the first £1million of any qualifying farming estate or business receives the 100% relief. Any qualifying assets over that threshold will be subject to a 50% relief - an effective rate of 20%.
Whilst no substantial changes have been made to the proposals, the recently launched consultation did provide interesting clarity around how the government proposes its changes would work.
Importantly, the proposals outline the intention to refresh the £1million lifetime allowance every seven years in line with the nil-band rate. This means that, once the changes come into effect, if you make a gift of APR or BPR-qualifying assets and survive for seven years, the allowance resets. This means that, with foresight and sufficient planning, you could gift more over a longer period of time and avoid increases to IHT.
Also outlined in the proposals is the stipulation that the £1million allowance would be spread across the entire division of the estate, meaning that if you were to set up multiple trusts, the relief would be spread across the combined value of them all.
It has also been confirmed that, unlike some other tax exemptions, the allowance will not be transferable on death. This means that the allowance needs to be used on first death and will not assist your estate by leaving the APR or BPR assets to an already exempt beneficiary.
The consultation, which can be viewed here, runs until 23 April 2025.
Ben Coulson, Partner in the Thrings Private Client team, said: “The Autumn Budget has adversely affected the farming community with the introduction of sweeping changes to the APR and BPR regime and the amount of relief available to rural businesses, causing a great deal of worry over how family-run businesses will survive.
“The detail starting to come out certainly helps to clear up these uncertainties. In confirming that the £1million allowance refreshes every seven years, in line with the nil-rate band, the government are allowing farmers and business owners to plan property for the future by implementing effective succession planning.
“The consultation is the first step in obtaining the much needed finer detail to the proposed reforms. What is clear is that farming businesses need to be obtaining legal advice and start planning ahead to ensure they are able to take full advantage of the new system and securing the future of their business.
“Given the importance of this change in policy to our many farming clients, we will be keeping a close eye on the outcome of the consultation to see how these proposals might be progressed.”
Thrings’ Private Client lawyers are experts in supporting individuals and families with a range of personal matters that are important to you. Whether it relates to a family business, land or private wealth, their expertise is there to help plan ahead in all areas ranging from succession planning and trusts, to wealth management, Wills and probate. To find out more, please get in contact.
